Monthly Archive

Well, not quite but Bryan Caplan reports that out of wedlock births are what’s keeping the US fertility rate as high as it is:

The U.S. has a much higher total fertility rate than Japan. The U.S. is roughly at replacement: 2.1 kids per woman. Japan, in contrast, is way down at 1.3. This means, amazingly, that American and Japanese moms give birth to almost exactly the same average number of in-wedlock babies: 1.26 versus 1.27. The difference: American moms then go on to have an additional .84 babies out of wedlock, versus only .03 for Japanese moms.

This adds another layer of complexity to dealing with the problem of intergenerational poverty. Poorly educated women with few prospects are more likely to have children out of wedlock. Traditional thinking is that expending educational opportunities will not only raise their income but encourage them to postpone pregnancy until their in a better financial position.

Yet, does this postponement necessarily mean imply a declining population and additional strains on our public retirement system? At some point does it imply a declining demand for capital and hence declining real equity prices as the workforce shrinks?

why is it that repulsive food is good for ratings if the host is not attractive, but bad for ratings if the host is attractive?

Beauty in food and beauty in hosts are compliments. Giada makes her food even more beautiful. Andrew Zimmern makes his food even more gross. People want to see extremes.

Indeed this theory could be tested by seeing whether or not there are any hosts in the middle. How are the ratings for moderately attractive hosts with moderately attractive foods?

Felix’s comments are based off of a model suggesting the attractiveness of the host on a scale from 1 – 10 and the repulsiveness of the food they eat on a scale from 1 – 10 always multiply together to equal ten.

Thus should see hosts with an attractiveness of 3.16 and food with a repulsiveness of 3.16. I can’t imagine that show does well.

There’s a tendency, that’s larger on the political right but also pops up across the spectrum because it’s fairly intuitive, to basically see the ups and downs of the business cycle in moralistic terms. A huge recession is punishment for our sins, and we need to just sort of bear with it. The evidence, however, suggests that this is wrong and that downturns can happen for reasons that are all out of proportion to the severity of the harm they do

There is a tendency to compare national economics to family economics; to assume that if we don’t have enough today it is because we had too much yesterday. What we need is to be more frugal.

This, however, is fundamentally wrong. The problem of recession is not that we have too few resources but that we have a problem putting those resources together. A recession is a state of affairs where we have factories without workers and workers with out factories. It is a period in which unemployment is rising and capacity utilization is falling.

A recession is fundamentally about real loss; tables that don’t get made, bridges that don’t get built, clothes than don’t get sewn. And, those things will never be made.

This can be a hard concept to get your head around at first, but today, somewhere in America, a factory is shut down because of the recession. Its workers were laid off and its machines were shut off. Eventually, the factory may reopen. Its workers may be rehired or they may take jobs elsewhere. But, what that factory would have made today will not be created.

If it reopens in a month the factory will produce something. That product, however, would have been made whether there was a recession or not. What that factory would have made today is just lost.

Its hard to wrap our minds around that because our intuition says resources are finite. Something that is not used today is left for tomorrow. The most valuable resource, however, is time. Time is what a recession wastes and that time can never be gotten back.

Steven Pinker echoes my views on just about everything he discusses in this interview on Point of Inquiry – in particular that we should mount a passionate defense of what can be supported by reason. No Less. No More.

All quite delicious. When I got back to the office, though, I decided to see what it added up to. First, I looked up the cookie. A solid 450 calories, with 19 grams of fat. Yikes. But what might have actually changed my purchase was knowing the content of my sandwich: According to the nutrition calculator, 525 calories.

The calories in the cookie weren’t startling. But their calories relative to my sandwich proved a bit off-putting. I could pretty much have ordered a second sandwich for the caloric cost. Buying them without the information, it was easy enough to just consider them a side dish. As it happened, the cookie was more like a second lunch. I wouldn’t have ordered a second lunch. Good to know.

You can imagine a lot of marginal changes in decision-making after a menu labeling law goes into effect. But would small changes in matter? They might. The following table comes from a Health Impact Assessmentprepared by the County of Los Angeles on calorie labeling laws. It shows how much of the whole county’sprojected weight gain would be averted if calorie labeling got X percent of restaurant patrons to make average decisions that were Y calories smaller:

There are few good things here. First, is Ezra’s recognition that the cookie has more calories relative to sandwich than he would have thought. This is good because it starts to bring up the important issue of calories necessary for satiation.

However, the entire rest of the piece is written from the calorie consumption hypothesis prospective. That is, that people are obese basically because they consciously or unconsciously choose to eat too many calories.

I should first note that there is serious debate about this within the nutritional community. That alone should give us pause. We are talking about a national policy here, that takes as a given a hotly debated point.

Second, and I am going to give some strong editorial here, but the calorie consumption hypothesis increasingly seems to be the promulgated by those whose who either don’t take the scientific issue of obesity seriously or whose analytical skills are somewhat lacking.

Why?

Well, the core assumption is that body mass is a function of calories-in vs. calories-out and that both of these are independent choice variables. The problem is that a basic system of differential equations built on that model would estimate that people would get much fatter, much faster than they do.

The exact results depend on your activity response function but it is not hard to get the conclusion that people should be 300lbs because they eat a slice of cake for dessert every night. That is, they eat everything else the same as other people do, but they also have this extra slice. As a result they become morbidly obese. That doesn’t seem quite right?

Even more unusual are the weight loss forecasts which tells us that by walking 20 mins a day someone could loose 200lbs or, and this is the clincher for me, a normal sized person should be able to exercise themselves into starvation simply by jogging an extra 10 minutes a day.

To make matters worse these conclusions assume a positive relationship between size and calorie expenditure. The data actually show a negative relationship. That is, bigger people actually burn fewer calories because they are so much less active.

If you pop that little gem into the model you get the conclusion that people should be able to reach infinite weight in finite time. Clearly this is not possible.

Those familiar with model making will instantly recognize that we need a stronger feedback or dampener. Calories-in must somehow influence calories-out or vice versa. Simply factoring in that a larger person burns more calories in a given activity is not a strong enough feedback to produce realistic results. When you include the fact that larger people actually engage in fewer activities, you need an even bigger dampener.

Ah, you say – maybe the obese are obese because they are engaging in fewer activities. Decreased calorie expenditure is the cause not a consequence of weight gain. Sorry, but no cigar.

Exercise in and of itself shows almost no potential to lower BMI. Exercise as an uncontrolled intervention will show ever so modest decreases in weight but the evidence is that the exercisers are secretly dieting. See, it turns out that you can’t do placebo controlled experiments for exercise because its hard to trick people who are not exercising into thinking that they are.

However, if you compare dieters who exercise to dieters who don’t you get no difference in results. Same weight loss. One possible conclusion is that after being forced to exercise study participants are more careful to watch what they eat.

“Watch what they eat,” what does that mean exactly?

Most of us have a sense that it means, “eat healthy foods.” But, what does that mean? Ezra noted in his piece that he was having a bad day so he added the cookie. Why doesn’t he always have the cookie?

Is it because the cookie is high in calories? Well, its actually lower in calories than the sandwich. Could Ezra watch his weight by skipping the sandwich and only eating the cookie? That seems comically silly, but why?

The cookie doesn’t have nutrients some say. He needs nutrients.

Okay, cookie plus multivitamin. Is that just as good as sandwich?

No, no you say, the cookie lacks fiber and protein. Well, actually I’m not sure its as bad you might guess on that, but fine, cookie plus multivitamin plus fiber pill plus egg albumen, are we good now?

Or, is there something about the cookie that makes it especially bad? Is it not how much food is in the cookie, but what kind of food is in the cookie? Could it be that the feedback mechanisms we need to make our obesity model work take some of their clues from the content of the food we eat? A system feed by sandwiches dampens to a greater extent than one feed by cookies.

The debate rages about what exactly it is in the cookie that effects the feedback mechanism. Is it the fat? Is it the sugar? Is it the aroma, yes this hypothesis exists. Is it the physical density of the cookie, the weight or mass per calorie?

The problem with enacting a public policy is, what happens if the aroma guys are right? Cookies makes us fat because they smell so good. How is calorie labeling going to help that? If calorie labeling fails is our conclusion that there is no hope?

We can update our label requirements as new information comes in but each update undermines public confidence in the label. First, they told us it was calories, then they told us it was fat, then they told us it was carbs, now they tell us its smell – these guys have no idea what they are talking about the public will say. And, they’d be right.

Felix Salmon asks how rentals in Manhattan can be down 58% over last year.

First, if I am reading the report right, that refers to new units rented. So, there isn’t an over 58% vacancy rates. There are just 58% fewer lease singings.

More importantly, however, as incomes and income prospects go up people buy more housing. Not just more square feet of housing, more units of housing. Lower income folks tend to share housing – the dreaded roommate.

There are typically savings to be had by moving in with someone even if you are occupying the same total square feet as you were before because you are sharing utility shafts, hallway lineage, etc. Now, those savings effect might be blunted in high price-per-square-foot Manhattan, but they probably still exist to some extent.

Moreover, most people who share an apartment do use less space per person, because they share spaces. They typically share kitchen and living space and often share a bathroom or at least a half-bathroom. This brings down the total cost per person.

So in a down economy we should expect the same number of people to cram into fewer housing unit. Housing may seem like its fixed but the consumption of housing is not. Housing supply curves slope upward.

As often mentioned there is a tendency for the unemployment rate to peak just after a recession ends. In recent years the peak has been extended as we have experienced jobless recoveries.

The big question, of course, is how likely is that this time? We talked about structural changes – the shift from manufacturing to service. We’ve talked about monetary policy difference – the much more gradual monetary policy of the recent to recessions.

Another way to look at this is through the lens of consumer spending. Consumer spending leads changes is unemployment. The following is a chart of the 12 month change in consumer spending vs. the inverse 12 month change in the unemployment rate.

What this chart is telling us is that the changes in personal consumption expenditures (blue line and left axis) lead changes in unemployment (red line and right axis). When personal consumption expenditures slow down unemployment rises soon after. Remember the red line is the inverse of the change in unemployment. Zero means unemployment is constant at whatever level. Less than zero means unemployment is increasing.

Its interesting how tight the relationship is. We have some deviations during the 1970s. The first is in the 1969 recession which I don’t know enough about, the second is in the 73 recession and may be due to increases in oil prices that caused personal consumption expenditures to fall less than domestic personal consumption expenditures. We also have a deviation in the 2001 recession, largely because it was a business rather than consumer driven recession.

One other thing that the chart is telling us that consumption has to increase a roughly a 3.5% rate per year to keep unemployment constant. This has to give us pause about the future. Can we expect that level of increase in the post financial crisis era?

Ideally, we’d like to see investment or net exports take up the slack. However, as often mentioned we can’t expect to get much out of net exports when the rest of the world is doing worse and its hard to get investment moving along with as much excess capacity as we have now.

Sectoral shifts provide some possibility for increased investment even in a low capacity utilization environment. We shift out of cars and into iPhone, producing investment along the way. This, of course, seems like a long shot for closing the kind of gap that we have. More on this and the relation to stimulus later.

New Claims: Took care of most of that this morning. However, lets look at the recent recessions. One of the things I notice is how, so far, the shape of this one is more reminiscent of the two 80s recessions than of the 1990 or 2001 recessions.

We have a long sharp increase as the recession begins and then a fairly sharp top. The two recent recession were more of a gentle upward drift. There is still something of a sharp peak but it flattens out early. Its clearly too soon to tell how sharp this peak will be but the latest data release gives us some hope.

This also causes me to question the purely structural hypothesis for the jobless recovery. Could we be seeing a difference in effective monetary policy. In the 1980s the Fed was tightening into the recession. In 1990 and 2001 the Fed was loosening into the recession.

The Fed was loosening into this recession as well but that was overwhelmed by the escalating credit crisis. I’m thinking out loud here but could very strong quantitative easing bring new claims down quickly here as well?

So this was promised last week but I am only getting to it now. Anywho: Lets look at a few data series. I’ll do this in separate posts to keep them readable.

Non-Farm Payrolls: First, the big dog — the monthly payroll series. There are a couple of different ways to slice this up. When thinking about how bad this recession is compared to others, I like percentage change over the last 12-months. What we are getting here is a sense of how fast the labor market is deteriorating or improving. The 12 month time frame averages out noise and the percentage lets us get a fair comparison with the past.

A couple of things worth noting

Things are bad but they are nothing compared to ghosts of recessions past. The Great Depression isn’t even on here. The payroll series begins in 1939. Contra a lot recent blogosphere musing, I don’t think the Great Moderation was an illusion. Though, it may have as much to do with structural changes in the economy as it does with good monetary policy

Generally speaking once the payroll series turns around on a 12 month basis it keeps going. There is a lot of inertia in this series. You don’t see it just wildly moving up down. There’s a pretty clear cycle.

For green shoot watching we want to take a closer view and lets switch to the month-to-month percentage change.

That’s a strong upward spike and though we gave a little of it back we are still moving well relative to the local bottom. However, see that little shelf around the end of 2008, just before the series dives off? I question whether the series is headed back there and then will stall out. There is no econometrics behind that hunch, just the sense that we were loosing jobs before the Lehman crunch, so even if we have undone the damage of Lehman does that just put us back to where we were in the middle of 2008?

So it seems Jim Demint confused National Socialism with Social Democracy. The varying historical uses of the term socialism can be confusing to Americans. So while I don’t find this scandalous, per se, I do think it’s a bit funny considering the following from On the Issues:

Mike reiterates a point I’ve been trying to make: taking out a no money down mortgage when you have no job, no credit and no assets is not personally irresponsible, it is (or should be) common sense.

You started out with nothing. The worst you can end up with is nothing. This is basically a no loose proposition. And, you could possibly win if the housing market moves in your favor. In the mean time you also get a sweet pad.

This basic asymmetry in leveraged investment is at the heart of financial crises and I believe recessions in general. If the investment goes well, you win. If it goes bad, the creditor looses. You can see how the incentives stack up here.

I think Mike overstates the case, however, when he says

Now imagine that I’m a degenerate crackhead who took out a subprime loan to move next door to you, in an arrangement that I’m likely not going to pay off. I might not even make one payment. If I default you’ll lose 10% of the value of your home from the externality effect. Assuming your home is worth $300,000, there’s a 20% chance I default in 2 years (realistic numbers), and you lose 10%; 300,000*.2*.1 = I’ve just robbed you for $6,000

Not quite. Chances are I am not going to be selling my home during this period and even if I had planned to, I can wait. Thus, I am probably not going to realize that $6,000 loss.

I do loose something though and this is important; I loose option value. I loose the option to sell my home for 300K. Of course this means I will be stuck in my home for longer than I might of hoped, but it also means more. The sell option on my home is negotiable. I can use it to obtain a lower interest rate of a home equity loan.

In short, if I give the bank the right to sell my home and collect what was previously my equity I can negotiate a lower interest and more credit. Those things do have value. It also why home prices matter to the economy.

Why don’t I talk about continuing claims for unemployment? The short answer is that to my knowledge they don’t have any forecasting ability. As I continue to look at the data I might find some connection between continuing claims and some other economic variable or interest.

I suspect, though I have not found, a connection between continuing claims and how people feel about the economy. If and when any of those links are confirmed I’ll start reporting it. Until then its just extraneous data and we already have more data than we can fully analyze.

The long view gives a little more perspective on how green the current shoots are. What we see is a pretty good top forming on the series. If we following the pattern of the last two jobless recoveries then we will get significantly more dip in the coming weeks.

Indeed, for the recovery to be truly jobless, and not job negative, we are going to have to see a strong fall in the next few weeks. The current level of new claims is still too high for us to be job neutral.

The good news is that it is moving in the right direction at roughly at what is now close to the right pace. We’ll see if that holds up through next week.

Weekly Claims fell from a revised 617K to 565K last week. My preferred measure, the four week moving average, also fell from 613K to 598K. This is the kind of drop I have been looking for, for the past few weeks.

We have to be a little cautious in that this was a Holiday. Benefit offices were likely to be closed. Some potential filers were likely to be out of town. The statistics compensate for that somewhat but can never be perfect.

Regardless, here is a look at the near term chart.

Pretty clear downward trajectory at this point. What we need to make us feel much better going forward is for next weeks number not to go above 600K. We should expect some rise. There is significant noise in this series and it is unlikely that all of the good news is real news.

However, a number below 600K will keep the four week moving in the right direction.

It’s worth recalling that if it somehow were the case that a modest soda tax led to plummeting soda sales, that a modest soda tax then wouldn’t work as a revenue measure. The point about the benefit of raising money from a soda tax isn’t that the decline in consumption would be giant, it’s that a marginal reduction in soda consumption wouldn’t be problematic in the way that some other responses to taxation might be.

I would point out, however, that taxing soda because of its junk food status would be like taxing electricity because power is made from coal. Ideally, you want to target the dirty element itself – in this case corn syrup.

Just as a modest tax on electricity is probably not going to cause enough conservation for carbon emissions a modest tax on soda is not going to change many habits. A tax, or lets be honest, a reduction in the subsidy on corn syrup will make high calorie – high carb soda relatively more expensive. This should make diet soda more appealing. I am not sure how big the cross price elasticity of diet vs. sugar soda is but intuition tells me its not small.

While I can see one worrying deeply about the government picking and choosing winners in the food market, we can at least agree that it shouldn’t be propping up high carb foods.

I have great affinity for Ryan Avent as a blogger and friend but this kind of stuff just goes down hard.

So absolutely, if Obama can work out bi-lateral agreements, even just on principles, between America and China or America and India, then that’s great. But we’re the big obnoxious fat man in the room. It’s all an exercise in hope until we get involved, and when we get involved, it’s suddenly no longer just an exercise in hope. [emphasis mine]

However, we shouldn’t let ourselves get too carried away. The value of a series is our ability to compare it to past experience. No series measures perfectly what we think it measures. Moreover, even a perfectly measured series is unlikely to correspond directly to our idealized theoretical construct.

That is, we might imagine layoffs to mean something in our heads. Perhaps, it means, “purposeful reduction in workforce for systemic demand reasons.” It is unlikely that this matches exactly what the BLS is even attempting to measure. Perhaps they are trying to measure, “planned termination of non-fixed term employees.” Yet, It is also unlikely that the BLS can get this directly and so perhaps they really report “announced layoffs by major US firms.”

The point being that we should be careful with data that hasn’t been around as long and we should never make the leap that because a data series has a certain title this definitely what we are getting an accurate read on.

Lest this come off as stuffy unwillingness to accept a bold, brilliant young data source I point you to what the BLS itself has to say on the matter:

While JOLTS [, Leonhardt and Rampbell’s new data source,] does not produce estimates of month-to-month change in employment, an implied employment change can be derived from JOLTS data by subtracting the separations estimate from the hires estimate for a given month. When viewed over time, this derived JOLTS measure of employment change does not track well with the CES, the Bureau’s larger and better-known establishment survey. The CES is designed specifically to measure month-to-month employment change, collects data from a much larger sample, and benchmarks annually to universe employment counts, making CES the more reliable source of monthly employment change [emphasis mine]

There have been a spat of posts recently theorizing on why the last few recoveries have produced so little in the way of jobs. I want to address at least two issues that came up, (1) the general trend over time and (2) the role of productivity.

First, lets take a look at that ubiquitous jobs lost from peak chart

What the first thing that should stick out to us about recessions over time? Is it that the recoveries are longer? Or, is it that the entire curve is flattened. The recession in 74’ ended a lot quicker than this 01’, but it came out a lot quicker as well.

This implies that we should be looking for a symmetric effect. Something that will make laying off slower but rehiring slower as well. As I’ve mentioned before, the most obvious candidate is a move from manufacturing toward services.

Manufacturing jobs create durable goods — things that last. This implies that you don’t need an employee to be employed in March to sell product in March. That employee could have built that car, washing machine or television in January but you are selling it today.

Recessions that hit primarily in manufacturing will cause employers to shut down whole plants while the company burns off excess inventory. Once the inventory is gone the plant starts back up. Workers are laid off quickly but they are hired quickly as well. This gives us the type of effect that we are looking for.

Another possibility is changes in monetary policy. I need to check the numbers but I am guessing that there were bigger faster swings in real short term interest rates before. Low inflation, in part keeps us from making the types of big swings that end recessions.

On Productivity. I get the sense from reading Derek Thompson, that observers are disappointed that rising productivity hasn’t produced more jobs. They’ve got something really backwards. Rising productivity kills jobs and that’s exactly the point.

As productivity rises the same work can be done by fewer workers. This implies that some workers are let go. Its the letting go process that fuels economic growth. Because, now those workers are free to pursue other jobs that add additional value to the economy.

Here is one way to think about it that helps keep this relationship straight. The economy grows through two basic sources: (1) increases in the size of the work force (2) increases in work force productivity.

However, in some sense (2) is just a version of (1). If productivity grows by 3% over one year, that implies that we can produce the same stuff we did last year with 3% fewer workers. Its like we now have an extra 3% of workers in the economy. Given that population growth is 1%, this implies that our economy can potentially produce 4% more goods and services because it has 4% more free workers.

It also means, however, that our economy has to grow by at least 4% to soak up all the workers. This implies that spending has to grow by at least 4% which all things held equal implies that the real money supply must grow by 4%.

For me at least, thinking about it in this way helps me to see how all of the big factors: productivity, employment, monetary policy, etc all fold back on one another. The money supply has to grow for the economy to grow, because in order for the economy to grow someone has to have the money to employ these extra workers. But, in order for there to be extra workers we either have to have more actual people or find a way for fewer people to make what is already being produced.

Ezra Klein is nobly searching for an accurate measure of administrative costs for public and private insurers. He questions whether profit should be in included. The short answer is no.

I often hear people lament that “the private sector is less efficient because it has to pay profits” No, no it doesn’t. Profits are residuals and its quite possible for the residuals to be negative for a long, long time. In those cases the investors are actually subsidizing the product, making it cheaper than it would be in a world without profit.

In the long run all a company has to do is break even to survive. Even if the company makes profit it doesn’t have to share it with the investors. Instead it can reinvest those profits directly in the company. Microsoft didn’t share a dime with investors until 2003.

Yet, even when paid out to investors as dividends profits shouldn’t count as administrative costs. Profits are the cost of raising capital. Public companies have to do that as well and they have to do it by raising taxes, which impose an even more complex system of costs on the economy.

So, while there may or may not be savings related to switching to a single payer plan, profits are not among them.

What about 2010? In February, Bernanke’s term is up. After that time, Obama can decide if he wants to replace him. He probably will do so, and that replacement will probably be the President’s favorite economic guru Larry Summers.

With one of his own advisors as Fed chief, that will make it even harder for the Fed to resist Washington’s political pressure. So imagine it’s early to mid 2010. Midterm elections season is in full swing. Can you really see Congress and the President allowing Summers to tighten monetary supply and risk an economic recovery just in time for voters to head to the polls? I know I can’t.

I am actually interested to see what the Administration will attempt on the Chairman front. I am sure that his advisors are busy telling him that he will get no cover for what appears to be a purely political pick. There are many economists who are loathe to enter political debates that would come out in full swing if they thought the Administration were gaming the Chairmanship. Central bank independence is sacrosanct among macroeconomists.

On the other hand, as a first rate macroeconomist, Larry Summers is eminently qualified to be Chairman. His nomination in and of itself is not evidence of gamesmanship.

The question is whether there would be any residual loyalty towards the administration. I have never met Larry Summers but I find that hard to believe. Best I can tell Summers is struggling to hold his tongue as an employee of the Administration. I find it hard to believe he would not act in the best interests of the nation.

All of this goes towards what I see as the not-so-soft cynicism of low political expectations. It is often taken as a given that politicians and political appointees will work for the betterment of their party’s electoral futures. Perhaps I am blinded by distance, but I rarely see a whole lot of evidence for this.

The current Whitehouse and Congress would have to do little more than play a reasonably moderate card to ensure that the GOP languishes in the wilderness for sometime, but they haven’t. Pushing for a war in Iraq was not the most surefire way for a president coming off 90% approval ratings to win re-election, but Bush did it. By and large I think politicians seek to push their agendas as far as they think they can go.

They don’t stand by widely unpopular plans or often spit directly into the faces of voters, but this is simple pragmatism. Going down in flames, championing what you believe no matter the costs, might be romantic but it is not conducive to actually implementing an agenda. What I am saying is that getting reelected, appears to me, to be a means to an end and that end is implementing the policy they think best.

For Summers, the Fed Chairmanship would not be up for reappointment until 2014. He would be defended vigorously by academics and wonks if it looked like Congress or the Whitehouse was punishing him for pursuing the right course. I see little incentive for him to do anything other than what he thinks is best.

Now that having been said, I think there is a reasonable argument that somewhat higher inflation is best, but that is for another post.

Ezra Klein seems to suggest that a soda tax won’t work because people don’t buy more food when food is cheaper. I think this is a misreading both of the concerns driving soda taxes and the food data.

Here’s Klein

The theory behind this is simple, and, on an abstract level, unassailable. If calories cost more, people will consume fewer of them. If the government slaps a $10 tax on every bag of chips, Lays would probably go out of business. But that isn’t likely to happen. The question, rather, is whether relatively modest taxes on calories are effective. Are people extremely price sensitive when it comes to food? Or not?

The evidence appears to point toward “not.”

I suspect overall food prices have a measurable impact on how much food people consume primarily because price has an impact on the amount of food people throw away. Consumption of food doesn’t necessarily mean ingestion of food. Throwing a way leftovers so that you can make something new tomorrow is consumption, economically speaking, and is probably influenced by price.

I maintain that ingestion of food, however, is influenced primarily by hunger. People eat more when they are hungrier. The question is whether or not certain foods do more to curb hunger, per calories ingested, than others. I don’t want to go deep into the nutrition debate but there is some evidence to suggest that junk food is less efficient at curbing hunger. That is, you have to consume more calories of soda and potato chips to get full than a traditional home cooked meal.

In that case changing the relative price of potato chips and say broccoli could cause people to switch to broccoli and thus get a more efficient source of satiation. Note that just because potato chips are less efficient at curbing hunger on a per calorie basis doesn’t means they are less efficient on a per dollar basis. The cost of potato chip calories is so low that its a cheaper way to satisfy your hunger even if you have to consume more calories to do it.

Now, all that being said, I am not sure that the government should get into the business of trying to direct people towards the most calorie efficient sources of food. It should, however, probably get out of the business of directing people towards the least calorie efficient sources of food. End the grain subsidies.

I still have some global warming and jobs report posts in the queue but those require actually looking over some data and ‘thinking’. In the mean time I wanted to get in on some of the stimulus action going around the blogosphere.

I wrote before that I favored a bold and swift fiscal stimulus. I tend to favor payroll tax cuts, not because I don’t think there are good government projects and not because I think taxes are generally too high, but because tax cuts are faster and payroll tax cuts in particular directly target the incentive to layoff labor.

I know that the permanent income hypothesis suggests that people will save rather than spend temporary tax cuts and thus they should be avoided. Empirically, I am not sure that this pans out.

Yes, we know that if we give a big one time rebate the money will not all be spent that month, though importantly some of it will be spent. A more difficult empirical question is how much higher will spending be over the next 6 – 9 months because of such a rebate. An even more difficult question is how much higher will spending be from a full 12 month reduction in taxes.

Theoretically, I think there are some reasons to the think a fair bit of the money will be effectively spent. I say effectively because saving by one person could facilitate spending by another.

People are liquidity constrained. That is, they wish they could borrow more but can’t. Given that most us accept loose lending standards, whatever their ultimate source, as a major cause of the housing boom, this is probably non-trivial. The idea that lending standards affects borrowing rates depends on the notion that there are people who would borrow but are prevented from doing so. Temporary tax cuts allow them to essentially borrow from themselves.

Recessions are associated with higher credit spreads. This implies that there is currently a larger rift between the rate at which individuals can borrow money and individuals as represented by their government can borrow money. Even if you aren’t actually constrained it’s cheaper to take out a loan in the form of a tax cut that you will result it higher taxes later than taking out that same loan directly from a bank. This should encourage spending just as declining interest rates encourages spending.

Defaults increase consumer lending spreads. In a high default environment individuals have to pay more to borrow money. Much of the “savings” that gets done when taxes are temporarily cut is likely to be catching up on late payments. This is especially likely to be true for tax cuts targeted at the poor. Catching up on payments may seem like a non-stimulating use of money but if it lowers credit spreads then it enables other consumers to borrow more cheaply.

People are myopic and use rules of thumb to keep themselves out of debt. That is, if most people borrowed according to their preferences they would borrow themselves deeply into debt. This is because they value near term consumption at an inconsistently high rate. Having preferences that are inconsistent means that following rules of thumb can leave you better off than simple maximization. These rule of thumb might be “only use the credit card for emergencies” or “never borrow to pay for something that will be gone before the debt is paid off.” Those rule, however, don’t typically include “always save your tax cuts.” Thus, tax cuts are spent at rate inconsistent with a pure intertemporal maximizer.

The Happy Planet Index is an ideologically rigged ranking released each year by the New Economics Foundation as part of their fight against the evils of economic growth. As far as I can tell, the whole thing is based on the false assumption that it is physically impossible for the entire population of Earth to achieve OECD-levels of material wealth.

Whether this is a meaningful measure is an open question. Measuring happiness raises philosophical and practical questions that are perhaps best handled with a dorm room and a bong, not a think tank. Nonetheless, I sympathize with the NEF"s — excuse me, the nef’s — impulse.

I sympathize as well, though I don’t know if a bong is conducive to serious inquires into happiness. I know that happiness research has the feel of some a pseudo-intellectual exercise in pop philosophizing, but there is something real and important going on here. We don’t have to leave this to the dorm rooms.

For one, we can find persistent trends simply using self-reported happiness. Conor’s chart shows us that self-reported happiness tends to line up fairly well with our basic notions of economic development, stability and social freedom.

The relatively wealthy, stable and free West seems to do well. The poor and often unstable countries of sub-Saharan Africa do poorly. The biggest odd man out is Saudi Arabia. This peaks my interest in further research.

It may also seem strange when only looking at income that Brazil reports higher happiness than Japan, but its not strange when thinking about the two cultures. I mean don’t Brazilians seem a lot more happy than the Japanese?

The important question is to what extent this says something about the institutions inside of Brazilian or Japanese society. Is happiness lost in translation or are there empirically verifiable policies that promote happiness?

Moreover, we don’t have to stop with self-reported happiness. Happy brains look different under an MRI and that gives us potentially stronger empirical grounding for our findings.

Jeff Miller defends the Birth / Death adjustment in the BLS Payroll data

Most of the BLS critics have been offering the same complaints for many years, but no one ever asks whether they were correct. The closest the BLS team will come is the paper they published last October.

In this article we have emphasized that something about the birth/death adjustment is good, very good. It improves the job change estimates in every quarter.

This seems counter-intuitive. How can we have new job creation in such difficult economic times? Most people believe their intuition rather than the data.

Let me draw an amusing analogy. Imagine you wanted to tax cigarettes higher, but were worried how smokers would react. You assume all of them smoke a pack a day, which amounts to 365 packs per year. So if you raise the tax on that by $2 a pack, and give them a rebate for $730, would that make them smoke less?

This idea seems a little bit out there, for smokers or drivers. I guess the idea that the government would be paying its citizens to not do something just seems a little too hard to swallow.

. . . Any cost savings incurred from not driving after the tax would also have been a cost savings that they would have incurred before. Now that savings is greater, but they didn’t care about it then, why would they care about it now? I just think people care more about convenience. [emphasis mine]

Now, just to be clear. What I find shocking here is not that Indiviglio doesn’t believe that people will reduce their consumption of gasoline in response to a modest increase in the relative price of gasoline. Hey, estimates of the elasticity of gasoline vary.

Nor, is it that he seems to believe proponents of gas taxes are fools. Hey, everyone is entitled to an opinion.

However, I’ve read his post a couple of times and it really sounds like he’s shocked that anyone would believe in the basic idea that relative prices change behavior.

(1) Goklany’s analysis does not extend beyond the 21st century. This is a problem for two reasons. First, climate change has no plans to close shop in 2100. Even if you believe GDP will be higher in 2100 with unfettered global warming than without, it’s not obvious that GDP would be higher in the year 2200 or 2300 or 3758. (This depends crucially on the rate of technological progress, and as Goklany’s paper acknowledges, that’s difficult to model.) Second, the possibility of "catastrophic" climate change events — those with low probability but extremely high cost — becomes real after 2100.

My general point is that extending beyond a 100 year horizon takes into account values that should be highly discounted. I know the discounting debate is deep and long and deserves far more attention than I can give it here but let me make just a few points.

First, discounting that far matters because there is inherent uncertainty about the usefulness of actions for future generations. The simplest objection is that there is a non-trivial possibility that humanity won’t make it past 2100 anyway. In that case effort spent saving future children is wasted. I know that sounds a bit nihilistic but it matters.

You cannot die twice. This is why the threat from one hundred 1% probability of death events is not 100%. Dying from one thing cancels out part of the probability of dying from the others. If we didn’t count this effect we would wind up spending all of our time and energy worrying about 1000s of very small probability events.

On a more positive note, there is the possibility that the dangers of global warming or even global warming itself might be mitigated by future technology. Low cost scrubbing towers for example could allow us to undo much of the harm that has been created. If these become a possibility by 2100 then damage will have been sustained today for little gain.

I don’t mean to argue for scrubbing towers specifically but to suggest that radical changes are both possible and related to the rate of return on investment. Societies with high economic rates of return and therefore high discount rates are precisely the societies undergoing more rapid change.

Second, discounting matters because generally speaking the things get better in the future. For the most part a transfer from people today to people in 2100 is a transfer from the relatively poor to the relatively rich. Unless we get some things terribly wrong this will be especially true for those in the developing world where real GDP growth rates often exceed 6 or 7 percent.

(2) Goklany’s estimates are based on global aggregates that hide the unequal distribution of the climate change burden. Yes yes, I know Manzi will say that’s not decisive: As long as global GDP is higher, we can redistribute our way out of the problem more effectively tomorrow than we can today. I would be more comfortable with that debate if I thought vast international restributions ofincome in the name of global equity were more likely tomorrow than they are today.

(3) Along those lines, I’m suspicious of the ethical calculus that says we should not focus on one large global problem because larger global problems might exist. That kind of moral math rarely corresponds to the political reality. (Do you think the average congressperson opposed to Waxman-Markey has trouble sleeping at night over new cases of malaria or global hunger?) Nor does it correspond to the historical responsibility: Industrialized nations are more responsible for the global problems created by climate change than the problems of population growth.

Then you really are arguing that Waxman-Markey is Stealth aid and we are going for it for practical reasons? I am not opposed to this but I think the intellectual community should at least be straight forward about it even if the politicians cannot be. We need to understand what the arguments are and what the real tradeoffs are.

(4) I think Goklany is a bit picky and choosey with the evidence. I always feel uncomfortable making this kind of argument, since empirical disagreements tend to make important differences of worldview look like abstruse technical quibbles. I also like the Goklany paper a lot. But in this case it’s hard to resist.

The carbon fertilization issue is not merely a technical quibble. It goes to the heart of whether or not a warmer world is worse world. This was never intuitively obvious to me for a couple of reasons.

One, the cold sucks. In a world with air conditioning I see few people wishing that the they lived in a cooler place.

Two, there is more land mass and higher development in the northern regions of the world. That is, the places least affected by warming are the places that have the most space and are often the best to move to. There is good reason for many people in the developing world to move to Canada sans global warming. If anything a warmer world might make Canada more attractive.

Lets be clear. I don’t mean to say that we shouldn’t worry about Global Warming because I personally hate the cold – even though a Toronto that was 50 in November would be a beautiful thing.

What I mean to say is that we need to think carefully and deliberately about the consequences and that the results of those deliberations matter. If we find that hunger is greatly increased by global warming, that matters. If we find that vast swaths of Siberia are opened to heavy agriculture and settling, that matters.

There is a lot more to be said on this issue. Including addressing model risk, which is important.

With talk of a third round of stimulus brewing I’d like to revisit the idea of doing it right. Unfortunately, the second round did not meet the laudable goals of targeted, timely and temporary. Instead, it was largely cover for doing things that Congress wanted to do anyway.

My suggestion at the time was a one year suspension of the payroll tax coupled with a open ended line of credit for the states. Though we might want to consider adjusting the size of the program given that we have already have two rounds of stimulus in place, I think that general structure is still desirable.

Lets look at it under the three criteria.

Timely: The payroll tax cut can take effect almost immediately. There is very little administrative ramp-up. The line of credit to states also takes place very swiftly. More importantly, however, even the passage of such a stimulus would affect the decisions of businesses and state governments instantaneously.

Targeted: This approach attacks three of the four areas of greatest concern. First, the line of credit to states allows them to stop disastrous cuts in spending. As is widely reported the balance budget requirements on state governments are highly pro-cyclical. They result it cuts in service when services are most needed. They dump state employees onto the unemployment lines when the unemployment lines are already overflowing.

I don’t know the legal restraints on states borrowing funds from the Feds but it seems to me that some sort of Federal Grant Repurchase Agreement could be struck, whereby the states receive some of the grant funding they would have gotten over the next 20 years today.

Second, business side payroll tax cuts will result in fewer layoffs. Businesses face cash flow constraints. Even if a worker is productive and profitable over the long run, that worker may have to be let go if the revenue today isn’t sufficient to cover the entire payroll. Its a travesty that economists haven’t been able to better incorporate business cash flow constraints into our models given that one of the things we all agree on is that the amount of cash and credit flowing through the economy seems to matter.

Third, working families get a pay boost. We are facing rising defaults on credit cards, auto loans and of course mortgages. Now, a 7% tax cut isn’t going to save a family that is deep underwater on a $400K Florida condo. However, it will help some of those on the margin and it will make still more feel more comfortable about not hitting the margin.

The fourth area of concern we don’ tackle directly. That area is unemployed families. The first round of stimulus took care of my proposal to expand unemployment benefits. Hopefully, relief on for the states will yield positive benefits for this group indirectly.

Temporary: The simplicity and the audacity of these programs make them necessarily temporary. Few people would suggest that the states have a permanent opened ended line of credit with the Feds. More over if it is structured as a Grant Repurchase Agreement, there are only so many grants that can be pushed forward and thus only so much money states could possibly borrow.

The payroll tax suspension is so huge that I think few people would consider making it permanent. This would be a de facto overhaul of the entire US tax code. Its also why suspension of the whole thing for a short period of time is preferable to a cut for a longer period of time. Given equal dollars the suspension is more likely to be temporary.

Let me say that I’ve really enjoyed this rare Friday-off three day weekend. I think it’s been a lot more fun than your traditional Monday-off three dayer. I think it’s the difference between a weekend that psychologically feels like it has two Saturdays and a weekend that psychologically feels like it has two Sundays. But whatever the reason, I think we should formalize the switch, eliminate our “observed on Monday” national holidays and shift them to Fridays.

Many people go to church on Sunday, but that doesn’t seem related to Matt’s point. Does anyone have any structural ideas about why this might be true or do we have to start digging into our econo-psychology toolbox?

And, of course, if the situation deteriorates further we will need an even bigger stimulus, while if the situation improves having too-big a stimulus is not a problem because we can soak up the demand through monetary policy.

How exactly is monetary policy going to soak-up extra demand?

The Fed soaks it up by raising interest rates and reducing activity in the private economy. Thus under Brad’s scenario public spending is higher but it has just served to reduce private spending.

This is not the worst of all worlds, but it is important to recognize that this is how crowding out happens. A lot of observers are puzzled by the Keynesian insistence that government can stimulate the economy through spending because they explicitly or implicitly imagine that government will simply crowd out the private sector.

The most common question I received when speaking on the stimulus begins, “I don’t see how we can possibly get more by spending more?” Its important to explain that in recessions spending can indeed create more, but it is also important to recognize how those same economic mechanisms square with basic intuition.

They square because too much demand will lead the Federal Reserve to shrink the private economy.

Mohamed El-Erian raises the possibility that the future will be one in which “full employment” is as high as seven percent. That is, the Federal Reserve will not be able to push employment lower than that without sparking inflation

This possibility of a very high and persistent unemployment rate is not, as yet, part of the mainstream deliberations. Instead, the persistent domination of a "mean reversion" mindset leads to excessive optimism regarding how quickly the rate will max out, and how fast it converges back to the 5 per cent level for the Nairu (non-accelerating inflation rate of unemployment).

The US faces a material probability of both a higher Nairu (in the 7 per cent range) and, relative to recent history, a much slower convergence of the actual unemployment rate to this new level.

I don’t yet see a higher NAIRU or natural rate of unemployment – at least in the way that I think about the natural rata – in our future. I tend to think of the natural as being determined by structural features of the market such as the ratio of service sector workers to manufacturing workers. The more service sector workers the lower the natural rate, for example. Perhaps, there is some deeper paradigm shift that I have not yet internalized. So far, however, I don’t see it.

I do see a prolonged stint away from the natural rate and very weak recovery.

I pull up my feed reader in the morning and get the political news of the day as seen through the prism of two-party political conflict. These fall into two central categories. First, there are issues where Obama is only marginally more sane than Bush, but conservatives are outraged that lip service is being paid to sanity. Second, there are issues where Democrats are grinding along with some well-intentioned but probably harmful plan, and the Republican response is shrill, dishonest, offensive, and—if those fail—flat out psychotic.

and perhaps more importantly

There’s no a priori reason that someone’s position on the morality of abortion or the desirability of single-payer health care ought to correlate with their assessment of the threat of anthropogenic global warming—unless it’s that there’s a correct set of positions that the wise and good will converge on, while the stupid and wicked are either duped or malicious enough to get it uniformly wrong. (I shouldn’t caricature too much here: there are plenty of moderately prevalent views that you have to be a little dumb to hold, but they don’t necessarily track any partisan split.) Sooner or later, discrete issues blur into the territory of opposing teams.

However, I wonder to what extent there isn’t a fundamental correlation among some views. There seem to be three basic questions that inform many of the views that people take

Is science or religion a better path to truth

Are social problems primarily failures of the individual or society

Is the “other” more naturally friend or foe

Indeed, only the first two of these questions are needed to answer explain Julian’s three issues.

Differing opinions on abortion and global warming are explained in part by differing answers to the first question. The dominant faith in the United States is Christianity and a plurality if not an outright majority judge the Christian faith judge it to be solidly opposed to abortion. The devoted, therefore, tend to oppose abortion.

The effects of global warming are not intuitive. Its consequences will only be seen in full measure long after we are dead. One must have a great deal of faith in science to accept the urgency of dealing with it. Those who put greater stock in science will on the average be more inclined to accept it.

Advocacy of a single-payer health care system is related to one’s answer to the second question. If the problem of the uninsured is a problem with the uninsured, then one is less likely to favor single payer. If the problem of rising health care costs is a problem with individual’s stewardship of their own health, then one is less likely to favor single payer. If these are social problems, then single payer makes more sense.

Why though do these three questions line up?

The first and second line up in part because the story of the dominant religions in the United States is a story of individual failure and for the most part individual salvation. A devout follower of the Abrahamic faiths must believe that the individual is capable of free choice and that poor choices bring poor consequences.

The third lines up with the first in part because the other often has a different religion and is thus to some extent naturally a threat to the religious order. The third lines up with the second because if we suffer primarily from social failings then some of those failings may be remedied by following the example laid out by other societies. If individuals are to blame then individuals from others societies cannot be trusted as they may bring failings to our own which have not been socialized out.

Now, there is certainly room for disagreement and it is by no means true that the two political sides are composed of monolithic wholes. But, it makes sense why a person holding liberal views might be more sensitive to other liberal views and why a person holding conservative views might be more sensitive to those holding other conservative views.

This also explains why economists and the economically inclined are such weirdoes. Economics is a science that traditionally lent support to the notion the wicked individuals acting on their own wickedness could achieve noble ends.

Such conclusions break the tie between the first and the second questions and casts doubt on the importance of the third.

Apparently tomorrow is a holiday, so we get weekly new claims, monthly jobs and unemployment all this morning. I’ll start with summaries and update with charts and analysis later in the day.

Brief Summary:

Jobs Report

467K jobs lost in June is not good. What’s worse, however, is that

1) We are moving in the wrong direction. We had 322K jobs lost in May

2) The big downward revisions have stopped and in fact April job losses were revised upwards.

Downward revisions are a strong sign that the job market is recovering because of the way the models are technically constructed. The models have a lot of inertia built into them and so their estimates overshoot at turning points. Lots of revisions in one direction is evidence that we are in a turning point.

Unemployment Rate

Rises to 9.5% from 9.4%

No real surprises here. We know the rate will continue to rise even if the recovery has begun and .1% a month is not bad

Initial Unemployment Claims

Fall from 630K to 614K

Good movement. Right direction. However, we were supposed to be under 600 by now. I really would like to see this number turning around faster. The longer we hover the more concerned I become. Hovering at 600K is not a jobless recovery, it is an endless recession. This number has to fall

Sounds like a Kaldor-Hicks efficiency type standard. The money outweighs the warming effects because if we transferred the money to those effected they would prefer to that outcome to one in which we restricted carbon and made no transfers. However, in all likelihood we probably won’t transfer much money. Foreign aid is a miniscule (yet very hated) part of the federal budget. According to Bruce Bueno de Mesquita, it doesn’t even go to the benefit of poor people in other countries. Rather it is how our government bribes other governments to behave to our liking.

Yes, the logic is Kaldor-Hicks. There are two points as I see them.

1) Much of the analysis suggests that Waxman-Markey will only have an effect on warming if it is a first step towards global reductions in emissions. These global reductions will have to come from developing countries as well as developed countries. Therefore, implicit in W-M is the assumption that we will push the developing world into accepting carbon reduction. Indeed, the proposed tariff tack on is about just that.

Well, if we are pushing the developing world to accept carbon restrictions and the point of carbon restrictions is that we will save the developing world from climate change then we are flirting with an global environmental nanny paradigm. Even if your point is that these are two separate groups of developing countries – China and India emit but Bangladesh is flooded – you still have to argue that it’s worth slowing India’s growth rate and prolonging rural poverty. Is this a fair trade now that you are looking at developing vs. developing?

2) Do proponents of Waxman-Markey see this as a stealth wealth transfer from the US to the developing world – aid disguised as environmental policy? If the reason Waxman-Markey makes sense is because it saves lives in the developing world but the developing world would rather have food, shelter and education then you seem to be implying that we want to help the poor but using the specter of global warming is the only way to do it.

My question is, is this true? Are we sure, because there looks to be some serious efficiency loss in pursuing this proposal and it’s not even certain the proposal will work. If Waxman-Markey proponents are truly ready in their heart-of-hearts to devote one percent of US GDP to helping the poor then we need to at least have a sit-down about converting this into real aid.

The stakes are high. Waxman-Markey might save some poor children 100 years from now. One percent of US GDP could definitely save some poor kids right now. If we are serious about really wanting a $130 Billion a year poverty relief program then the rules potentially change. The World Health Organization has a current budget of around $4.2B. UNICEF around $3.2B. The World Bank loaned at total of $24B in 2007 but if I am reading the budget right, their net “loss” was only $2B. Reading the USAID budget tables is no joke but my best estimate is that we are giving, right now, no more than $25B in anti-poverty aid. I can’t readily tell how much of this is geo-political in nature or an effort to support US agriculture.

In short, a one percent commitment, devoted solely to poverty alleviation, is a major step. There are real lives that could be saved right now. If people are serious about this – if helping the poor is the true motivation for Waxman – Markey, then it is worth the conversation. It is at least worth detailing why W-M is a better expenditure of 1%.

Here’s a highlight of Purdum’s reporting: “More than once in my travels in Alaska, people brought up, without prompting, the question of Palin’s extravagant self-regard. Several told me, independently of one another, that they had consulted the definition of ‘narcissistic personality disorder’ in the Diagnostic and Statistical Manual of Mental Disorders–‘a pervasive pattern of grandiosity (in fantasy or behavior), need for admiration, and lack of empathy’–and thought it fit her perfectly.”

Is there any real chance that “several” Alaskans independently told Purdum that they had consulted the Diagnostic and Statistical Manual of Mental Disorders? I don’t believe it for a moment. I’ve (for better or worse) moved in pretty well-educated circles in my life, and I’ve gone decades without “several” people telling me they had consulted the Diagnostic and Statistical Manual of Mental Disorders.

Really? Because I “check” the DSM all the time. That is, I look up psychiatric disorders on Wikipedia where there is always a list of the DSM criteria. Now, it should be said that I have a lot of crazy acquaintances. However, this is not that hard and if you think someone is off, it’s probably the first thing a lot of people would do. It’s certainly what you should do if someone suggests to you that a friend or an acquaintance was suffering from some mental disorder.

It also seems like perhaps the worst economic approach to ensuring that valuable news-gathering activities continue. The news that’s gathered either has private value, in which the news gatherer can simply charge for access to it, or it has some value as a public good, in which case, the appropriate policy is to directly subsidise the activity of gathering publicly valuable news.

This seems to me a false choice. We make policy all the time to ensure that private value can be realized. The most obvious is patents. Once an invention is created it can be copied, but we bar that in an effort to allow patentees to hold on to their private value. The most basic example, however, might be the common law itself. We don’t allow stealing, murder, manslaughter, etc in large part because these actions deprive someone of private value.

We can speak in terms of basic human rights, but a right that no one values is not a right that the law will take great pains to protect. These laws are enforced because people value their property and their personal security and are worse off when it is forcibly taken from them.

Is taking copy from the web any different? Are we not, in effect, stealing from a house with no walls?

The ADP report gives us a first glimpse at what employment did in the month of June. The official payroll series comes, as always, on Friday.

The best we can say is that the series is moving in the right direction. There are fewer job losses this month than the last. That is an ambiguously good sign. The problem is that the rate of improvement is slowing. Yes, that’s right I am bringing up the third derivative, changes in the rate of change of the change in total employment. These things matter, however, because the derivatives not only help us forecast future values but display patterns themselves.

Even in the last jobless recovery we can see that the change in employment rockets up close to zero before slowing down. That is, the economy moves quickly towards neither creating nor destroying jobs. This time the economy is giving hints that it wants to stay out around minus 400K a month. As if the steady-state where a recession.

With the specter of the Japanese Lost Decade still looming, such signs are less than encouraging. Still two months don’t make a trend and a month’s worth of third derivative analysis makes even less than that. Stay tuned.